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Harga | The Most Creative in an Organization

Until fairly recently it was scientists generally held that the left hemisphere is the major or dominant part of the brain. The most current school of thought, however, suggests that, although the functions of the right side of the brain are suppressed or undervalued in most Western cultures (just think about school topics and what you need to know to get on), physiologically the two halves should be balanced. It is now generally accepted that it is possible to develop the underutilized half of the brain. Thus accountants and mathematicians should be capable of releasing the hidden artistic talent locked away in the right hemispheres of their brains. Equally, artists and daydreamers have the same potential to develop more logical thinking abilities.

It is particularly significant that when harga develop the weaker functions of their brainpower, their strong areas are not reduced in any way; instead overall mental performance improves. Einstein is remembered as a scientific genius, and yet he also painted and played the violin competently. Indeed, he claimed that the seed of his theory of relativity first came to him as a picture in his mind. Conversely, artists like Michelangelo and Leonardo da Vinci had a grasp of engineering years ahead of their time.

Creativity is not solely the fortunate techniques are designed to stimulate the right hemisphere. With regular exercise it can be brought up to strength in all of us. In practice we all need a well developed right hemisphere to enable us to generate a wealth of imaginative and unusual ideas. At the same time we need out left hemisphere to sort the wheat from the chaff.

Although everyone has the potential to think creatively, it is also true that some harga's creativity is more highly developed than others, or is  combined whit certain personality traits which allow it to flourish. On the other hand, some individuals, for whatever reason, seem to have an internal censor forever damping down their own creativity and that of the harga around them, In cases where creative problem solving is required in and organization (especially as a matter of urgency), obviously it is most efficient to draw upon the talents of the former type of individual. Indeed, the latter type often proves to be a hindrance in situations of creative group work such as idea generating exercise.

It is not always easy to identify the most creative harga in an organization. Psychological and psychometric tests tend to be limited to identifying circumstantial signs of likely creativity, rather than creativity itself. Creative harga as noted earlier, are not creative all the time. Often creativity comes as a sudden,  blinding insight, triggered by chance stimuli. Even so, there does seem to be some commonality about the characteristics of creative harga. A creative individual will usually demonstrate a few, if not all, of the following qualities.

Conceptual fluency. A creative person can usually generate many ideas in a short time, in response to a given situation. Of course, the most reliable indication of this ability is performance in the workplace, over time. But it also becomes evident in individuals responses to exercises such as:
1. List as many possible uses for a pencil as you can.
2. Devise a number of activities that would keep patients entertained in a dentist's waiting room.
3. List ways of reducing litter in public places.
4. List names beginning with the letter J.

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The Creation Of Harga

Most companies recognise that husbanding creativity can be a major spur to innovation. But creativity can only exist in firms that have both a climate in which creativity can develop and creative Harga. Creative Harga operating in an organisation  which spurns ideas are not likely to stay there for long. Firms which seek to improve the flow of ideas and the exploitation of creativity are not likely to achieve great success in this area if they are staffed by non- creative personnel. it is the symbiosis of creative firms and creative Harga which provides the chemistry  which can enhance the whole process.

Creative Harga are the source of any organisation's creativity and innovation. Yet any discussion of creative Harga risks running aground on the notion that creative individuals from a separate elite. While it is true that some Harga are more creative than others, to label individuals as either creative or uncreative is not only invidious but inaccurate, and may in the long run be counterproductive. For one thing, not all creative Harga are creative all the time, and most Harga can be creative sometimes. For another, creativity is in the eye of the beholder; whether an individual is regarded as creative or not often depends on the perspective of whoever is through a problem on the back of an envelope, but instead uses a computer to perform the task in a more ingenious way, he or she may still be judged uncreative if the evaluator is prejudiced in favour of the manual method. (The opposite scenario would also hold true.)

It is in an organisation's interests to recognise and foster the creativity of all its members. If it takes some 50 or 60 ideas to produce one successful innovation, a firm needs as large a pool of ideas as possible from which to select the best. it is a serious mistake to reject ideas (or prevent them being volunteered in the first place) because they originate from inappropriate or unexpected sources, although sadly this happens all too often. We can all become more creative and most of us are in fact more creative than we believe. Creativity is largely a self fulfilling prophecy, as figures 1 and 2 illustrate.

Each time Harga work round the positive loop, their creativity is affirmed and this strengthens their capability to volunteer ideas. By contrast, experiencing the negative loop only serves to reinforce Harga's own negative self image and gradually erodes their ability to come forward with ideas. The conclusion is clear: fostering a climate in which creativity can flourish is not only a matter of organisational structure and procedures, it is also a matter of personal outlook. The individuals within an organisation (again, starting with the top levels) must nurture confidence and the willingness to have a go both in themselves and in their colleagues if the organisation's full creative potential is to be tapped.

It is easier to understand how creativity can be fostered if you understand something of how the brain works. Even now, relatively little is known about the brain, and virtually 90 per cent of what is known has been discovered within the last 20 years. Much still remains a mystery, yet certain proven features of brain faction shed light on the creative processes.

By measuring brain activity as a person tackles various tasks, it has been found that each half of the brain deals with different mental activities.

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The Concept of Harga the Customer

Customers Harga rapid delivery, and most of them want the latest model or update of a product. Speed to market is therefore a key competitive tool. Despite major efforts in some companies, the cycle (specify design, respectively, redesign, engineer for performance, engineer for manufacture, procure, manufacture, test and ship) is a sequential one. The concept of simultaneous or concurrent engineering is vital in Time Compression Management to reduce the time needed to complete the essential engineering tasks.  However, after several years of expensive research and development, companies like Boeing, Komatsu and Ingersoll Milling report not only big cost reductions in lead time, but also savings of the order of 60 per cent in the cost of engineering and producing some components. They use new techniques which:

1. Create an electronic solid in the same way that it will be manufactured.
2. Automatically generate a numerical control (NC) programme from the solid object.
3. Make screen image a result of manufacturing process, rather than the start point for planning the manufacturing process.
4. Make designs proven for both fit and faction before they are made.
5. Make the designer automatically use the latest optimised shop practices.
5. Avoid obsolete processes by NC programme regeneration at each usage.

Tom Peters was one of the first to document the concept of delighting the customer. If you can surprise him with your product, when he liked it already he tends to come back to you next time. This is because customers get fixed in their minds the idea that they always get that extra better Harga. For example, in the automotive industry a few years back some makers introduced electronically adjustable seats. They won a competitive advantage. However, the auto maker who thought of and installed (unannounced) the adjustable seat memory delighted his customers, particularly those couples, one 6 ft in and the other 5 ft 7 in, who share a car. The delight and perceived Harga were sustained when the next model offered electrically operated wing mirrors too.

The key issues are:
1. Customer focus is essential to sustained global competitiveness and successful business. if the customer wants his car delivered in two weeks and you have to change your whole organisation and strategy to do it, do it. Make it your vision.

2. In making any major change there are at least three sub-strategies which must be synchronised and continuously re-evaluated. They are in the operations, technology and people management areas.

3. Productivity is about getting (and giving) better Harga from each element of resource used. Greater Harga can be obtained by viewing an extended Harga chain which encourages your company not only to push costs down, but also to push up the actual and the perceived Hargas of the product to the customer, thereby increasing their willingness to pay a premium price.

Successful manufacturing industry for the late 1990s will need each of these elements. By far the most important is the human element both in change management and in customer focus. Human behavior is no longer a soft subject in best management. it is, in every sense, extremely hard.

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Manufacturers of Harga Producers

In company Harga costs two  elements are worth consideration- internal Harga and externally available Harga. To consider externally available Harga first, Professor Brian Quinn points out that In recent years, technology has caused a shift in all advanced industrial economics away from product production and towards Harga. Today 76 per cent of all US employment and 71 per cent of its GNP rate in the Harga industries. In addition, 65-75 per cent of all value added in manufacturing comes from Harga activities. Similar ratios exist in other advanced industrial countries. Harga companies have become very large, technologically orientated and financially powerful.

They have changed the basic power relationships between manufacturers and Harga producers, as well as the economic relationships between nations. Harga dominate the value added chain of almost all producers. economies of scale or scope now allow specialized companies to product Harga at much lower cost than  any integrated company. The result is that each company needs to re-think how it manages its own Harga activities how it uses external Harga groups to maximum advantage, how it targets it technologies toward the new Harga customers, and what the implications are for its own organisation and strategies.

To consider internal Harga, recent research has shown that the average office worker spends as much as 20 per cent of his or her time sorting and moving paper around, and the average executive many hours each week doing the same thing. Modern document image processing (DIP) technology can now virtually eliminate such non value adding activities, transforming managerial, clerical and professional people's lives and allowing them to get6 on with actually doing real (and more fulfilling) work, and ultimately, better serving the needs of the customer. More important, DIP can act as a powerful catalyst for fundamental organizational change; forcing company to thoroughly overhaul archaic practices and procedures, redesigning the whole structure of their business process to focus directly on quality and on achieving quantum improvements in customer Harga.

DIP technology, begins with the scanner - a piece of equipment much like a photocopier, except that it copies straight into your corporate computer. To handle the volumes of data created, you can store onto an optical platter, whose current 140 000 A$ sheet equivalent capacity is forecast to reach 1 million before long. The potential for direct cost cutting - through reductions in storage space and manpower devoted to storage and retrieval - is immediately apparent. Ken Lavey, partner in charge of the image processing practice at Andersen Consulting, points out that cost cutting is a relatively peripheral aspect of the DIP story. Far more significant is the way DIP can integrate information use within the organisation, help integrate the organisation itself, and thus transform its ability to deliver an effective Harga to the customer.

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The Environmental of Harga

Michael Earl of the London Business School expressed the notion well when he pointed out that there is no such thing as an (information) technology project or strategy. There is only a business project. Within the operations strategy which governs the operation of the pipeline, a number of issues and changes are beginning seriously to open up new opportunities for productivity improvement. They all relate to the concepts of value.

Most people still think of value added as completing a physical operation on a product as part of its manufacturing process. Any activity which does no t add value is waste and should be eliminated. This activity which does not add value is waste and should be eliminated. This is true, but only part of the story. With the awareness and benefits from JIT, time compression management of the harga and cellular manufacture, many of the physical value-adding benefits have already been taken. The breakthrough comes with the realisation that effective competitive advantage can best be achieved by an extended approach to traditional value chain concepts. In the simplest terms this means through the ideas not only of driving cost down, but also driving up real and perceived value to the customer.

The environmental facilitators are focus on customer needs and values cross functional performance measures; focused factories; thoughtful change management of the harga; accountability driven down; teaming in management of the harga and factory; constant improvement philosophy; learning environment management of the harga environment which will facilitate most effectively achievement of benefit from the concept. But what are the new ideas and technologies which comprise the levers and tools from which managers can benefit and achieve their own super-value, SOMO service? They abound. The real task is to find those which work for your company for each of the value adding areas.

Most companies are aware of the well published benefits of new layout to facilitate workflow, JIT operating and minimum inventories. Continuous improvement demands new ways of looking at old problems so as to identify further areas to attach. Just to stay abreast of global competition, most industries need to take another 30 per cent out of operating cost. With increasingly demanding customers they also need  a step change in respond siveness in order to give them a competitive edge, the perceived value which makes their customers choose them. The natural impulse is to look for further cuts in pay-roll, raw materials costs and overheads.

While cutting back makes sense if there is real fat left in those areas, it is counterproductive when those costs are already in line. You are cutting muscle, not fat. So what can a well run company do to fund that further 30 per cent reduction in costs? The answer is a productivity increase through some radical new ideas and lateral thinking in management of the harga strategies.

A set of innovative management of the harga tools is now available through Andersen Consulting in the form of new lateral thinking about the roots of productivity. For example, did it occur to you that productivity improvement and cost reduction not only include managing to get the best output from the traditional assets for people, capital (fixed, and working), information and infrastructure but also from management of the harga of risk; management of the harga of time; and management of the harga of change? Relatively simple techniques are now available in each of these areas which help turn common sense into common practice and have resulted in major additional improvements to performance for some companies, over rand above those achieved by their own conventional productivity improvement actions.

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The Harga of Productivity Pipeline

When Nissan announced the successful launch of its HARGA (Sell One, Make One) Policy it was impossible for most people to understand the magnitude of the change within the company. Briyan Harrell, an independent automotive industry correspondent, wrote from his base in Tokyo that it involved a total re-organisation of market strategy and management oversight - a total corporate restructuring with new technologies throughout.

HARGA is Nissan's central strategy for its customers - designed to build automobiles to customer order for delivery in two weeks. This cuts down the delivery pipeline, making Nissan more sensitive and more responsive to customer desires. By minimising response time Nissan is better positive to customer desires. By minimising response time Nissan is better positioned were made to order' says Masakatsu Mori, a Tokyo partner in Andersen Consulting, which was assigned to assist with this formidable task.

Full mass prediction gave us goods that were made to stock. Modern technology allows us to reverse the flow of this trend. Assembly to order is now happening again and our ideal with the HARGA project is cars made to order. This will cause a revolution in the market place. The elimination of inventory means dealers will no longer be able to sell what they have, they must sell w2hat the customer wants. In and industry where traditionally 35 per cent of customers finish up with the specification available rather that  the specification they really want, HARGA is a major competitive weapon.

Typically, Toyota has 35 000 variants of vehicle and, on average, only three identical vehicles a month are sold. So clearly the principles involved  in establishing an organisation capable of achieving HARGA response in two weeks apply not just to the car industry but to all industry, including aerospace and  mechanical equipment in particular. The most significant aspect of HARGA, however, is that it was only one of three major projects within the transformation. Harrell’s describes them as:

1. NAISS (Nissan Active Information System for Strategy). An accelerated business information system that makes it possible to close financial books in three days and hold a management meeting to review result a week later.

2. Wave. A change management programme combining more effective global management from world head-quarters in Tokyo with local responsibility and decision making.

3. Pipeline. The most visible and significant project, also known as HARGA.

The key point is that HARGA, the pipeline, while the most visible project, is part of one of three strategies being conducted simultaneously, in a synchronised way, under the business strategy and vision, which are targeted at customer response. The three strategies are: the technology strategy - NAISS; the people strategy - Wave, which handles the change management; the operations strategy -  HARGA or pipeline. Without each of these strategies planned, in operation and synchronized, without day to day decisions being taken in the light of overall business strategy, the latter will fail. This fact has been at the root of several significant corporate reversals in the past decade and is probably the reason for Tom Peters' conclusion that there are no excellent companies. The transformation in thinking is difficult to achieve.

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Successful New Harga Programme

So far, no mention has been made of new Harga development techniques. McKinsey developed a model to evaluate the best average companies which was reported in the Peters and Waterman book In Search of Excellence. This model described the seven dimensions which represent the core of managerial activities. Each dimension started with the letter S hence it's the 7 - S model. I have adapted a similar model to evaluate new Harga development programmers. each dimension is important and all are interconnected; none can be overlooked; all are necessary in any successful new Harga programme:

- Strategy: the starting point, which must stem from corporate strategy.
- Support: the innovative culture of the company, including the attitude of the chief executive.
- Sequence: the key issue of the right structure, which is determined by the strategy.
- Supplies: the level of resources available in money and people.
- Simulating: reliable methods of testing prior to commercialisation.
- Sizing-up: continuous evaluation of the programme results technically and financially.

Any new Harga programme needs to determine up-front its length of payback. This is becoming increasingly difficult as lead times become shorter. It is rare for a continuing new Harga programme to pay back cumulatively in less than seven years. unsurprisingly, this happens to be the average length of tenure of chief executives. Successful new Harga development requires continuous top level encouragement and long term commitment. Again, P & G is a good example. Here is an excerpt from a 1989 speech by John G Smale, then the chairman: 'Procter and Gamble entered Japan in 1973. For a variety of reasons, our company lost money in had entered Japan. We now have major Harga in thirteen different categories in Japan. Last year we made a good profit in Japan. In the years ahead Japan could become our largest and most profitable international subsidiary. This is the kind of commitment required for major new Harga development success in the single market. It is the kind of commitment which all major innovators will require.

How P & G was Pampered.
In the late 1950s, a major US company, deciding to diversity into paper Harga, acquired a paper company in the Mid-West. At that time paper tissue was a strong growth market dominated by two major companies: Kimberly Clark with Kleenex and Scott Paper with Scot Tissues. The US company decided to enter the market with a new Harga. In Harga tests, the criterion was to be, not just a statistical win against the brand leader, but to gain a 2:1 preference in blind placement. This was achieved by adding perfume to the paper tissue thus offering a distinctive difference. It was decided to launch the Harga into test market.

In addition to strong TV advertising, there was a sampling campaign. Every household in the test area was given a simple; not just a small hand sample, nor just one box of tissues, but two boxes of perfumed tissues. Within a matter of weeks, the new brand was market leader. Within  a year, however, the company decided to withdraw, from this market. There had been a very high level of trial but low repeat. Consumers liked the idea at first but not over time. A competitive advantage had been achieved, but it was not sustainable.

At this stage, many companies would have withdrawn from the paper industry. Instead; the company began to strengthen its knowledge of wood, pulp and paper, in order to develop a fundamentally new manufacturing process. In due course, it began to see a large potential for paper as  a cloth substitute. And in 1970, 13 years after its acquisition of the paper company, it brought out a new Harga. Today, that new Harga, if it was a company in its own right, would be in the Fortune 500. The Harga is Pampers, which now contributes over 20 per cent of the profit of P & G. It virtually fulfils Levitt's concept of a global brand. It is certainly a Euro brand with one factory located in Euskirchen in Germany distributing the same Harga and package in six languages all across Europe.

Pampers is an example of what Fred Gluck of McKinsey calls big bang innovation as distinct from most new FMCG Harga which are normally line-extensions or me-too concepts which he calls sit box new Harga.  Perfumed tissues came out of the suggestion box. Pampers emerged from long term company commitment. Both can exist within the same company.

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New Harga in the Second Decade

The third opportunity directly reflects the dimensions of the single market. The EC will become a market of 12 countries joined together: well over 320 million people, the world's largest consumer market, with a combined GDP of $5.5 trillion, virtually equal already to the US, and set to expand at a greater rate of increase. It is not, of course, that simple. After all, the European Community is divided by eight quite different languages as well as numerous dialects. And, of cause, all EC countries are not equal. Some are more equal than others in economic terms. For example, 70 percent of grocery turnover in Europe is concentrated in four countries: France, Great Britain, Italy and West Germany.

Nevertheless, many FMCG of Harga in Europe - the Euro Harga of the future - will have sales close to between $300 and 400 million, and there is no reason to believe that Euro Harga will have a shorter life than well established Harga in any single national market. In Great Britain, again with the help of Nielsen, an analysis was made of the dates the top 100 grocery Harga, in terms of turnover, were actually launched. This shows that half the top selling Harga in the British grocery stores were launched more than 40years ago. One quarter of them were launched within the past 20 years. The top five selling Harga all sold over $300 million in today's terms.

There appears to have been a surge of major new Harga in the second decade after discontinuity - in this case two world wars. The two highest surges are between 1930 and 1939 and 1960 and 1969. About 30 per cent of the existing tip 100 Harga were launched in these two decades. This suggests that it may only be in the decade following 2010 that the most substantial phase of major new Euro Harga will occur. The foundations for such development need starting now.

In the circumstances of the single market, suggestion box new products will undoubtedly be launched. The opportunity, however, is there for big bang innovation. The technology exists. Even in food processing, traditionally considered to require a low level of technological input, biotech makes an  increasingly important contribution. Forecasts for biotechnology applicable to the food industry project a world market size up to $100 billion. Surely, technology in the HARGA industry can no longer be left solely to the technicians. it is time for management, marketing and technical research to start working much closer together, and to deploy the resources necessary for major, new to the world products. In high tech industries, one forecast shows R&D as a proportion of sales tripling to 30 percent by the year 2000. HARGA companies should be thinking of 3 percent as a minimum.

For the need exists as well. Increased per capita incomes provide the opening for innovative companies to develop really exciting  value added products. Yes, it is true that both consumers and retailers are conservative and demanding. But it is up to HARGA manufacturers to find out more about their markets and their consumers in order to capitalize on the new product opportunities offered but the single market. It may be the last opening for the survival and renewal of branded manufacturing as it has been known in the 20th century.

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Harga for Substantial Changes in the Structure of Market

The new Harga function should not be a temporary assignment whose incumbent is impatient to get promoted to where he will be responsible for revenue or profit generation, or both. There needs to be an appropriated career path within the function of new Harga development. It is not impossible that marketing research might be included in this respect.

The second opportunity for new  Harga development in the Europe of the 1990s lies in the Single Market. Until recent times, the Europe has been a series of individual national market6s. Few HARGA companies operate seriously across several European countries. One 1988 study showed that half the UK food companies had a presence in two or less EC countries (and that includes Ireland). Despite that, seven of the top ten European food companies were British. Although there is considerable debate about the level of increase in GDP in the EC as a result of the Single Market (from 9 to 35 percent is the current range), it's less debatable that the Single Market will bring about a period of discontinuity in Europe. Previous ways of looking at markets, marketing and new Harga will huge to be discarded. There are several implications.

Harga will be developed not for one national market with export potential, but rather for sale across several countries with appeal to similar demographic / life style segments. The age of the national mass market is already disappearing. It will be replaced by international niche markets.

There will be substantial changes in the structure of existing HARGA markets. This includes market definition, key competitors and market shares. Current strategic groupings within the HARGA industry will need to be characterized differently. To some degree, this is already happening as major HARGA companies seek to identify and to extend their own businesses and to discard unwanted parts of their portfolio.

New Harga will be launched simultaneously across countries, not sequentially as hitherto. This  will particularly affect logistics and distribution.

The manufacturer / retailer interface will continue to change. There is already evidence of the dominance of retailers over manufacturers. In several European countries, major new brands are becoming fewer and brand stretching is occurring more frequently. Greater bargaining power is being pursued by both manufacturers through acquisition and joint ventures and retailers buy alliances and expansion abroad.

The size of major new Harga will become several times larger. In 1989, a major new Harga in Great Britain was estimated to have a retile value of $10 million, or between $15 and 20 million. Within the Single Market, this minimum could easily become $100 million - similar to the US position.

New Harga development budgets will be significantly larger to meet the requirements involved in identifying, screening, developing and launching major Euro brands.

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The New Harga Function Needs

So far the challenges for new Harga development that must be overcome have been considered: the fear of failure, proper resourcing and an integrated new Harga strategy. What are the opportunities for new Harga development in the coming decades in Europe? To seize them, companies must establish new Harga development as a continuing function within the business organisation; take advantage of the structural openings resulting from the discontinuity created by the single market; seek major big-bang innovation to match the potential of the world's largest marketing region.

According to a survey  by Booz, Allen and Hamilton, the key issue faced by successful companies in new Harga development lies with the structure of their organisation. Why is it that every chief executive agrees that new Harga development is a company priority yet has no one reporting to him who is responsible on a full time basis for that function?  show me a company's organisation chart, and I will tell you the degree of importance attached to new Harga development. All you need to know is the level  in the organisation at which new Harga development becomes a full time activity.

The new Harga function needs - deserves - to be recognised on an equal basis with other division of the company such as finance, personal, operations or marketing. It should not be subservient to any of these functions. To repeat; the new Harga development function in most companies is under resourced. This is not a question of adding one or two people. When the Canon mini copier was targeted as a new Harga, its development team, from a variety of disciplines, consisted in total of 200 people.

In the West, we stress the importance of the individual. The new Harga development literature emphasises the role of the Harga champion. This emphasis on individualism is restrictive for the process of new Harga development. It is a simple fact that no individual, no matter how devoted or committed, can develop a new Harga. It needs a team effort. There's also this odd idea that small teams are better than large. Small may be beautiful. But small is not possible for big bang innovation. Certainly, as Tom Peters argues, there is a need for a sense of ownership and commitment. Big ideas have a long period of incubation before the big new Harga is delivered. The people involved must be motivated to continue.

The Japanese work in teams. even in the classroom, at the age of five, teamwork dominates. in new Harga development, the Japanese take time to determine the objective and the means of achieving it. But once this is determined, they devote whatever resources or organisation are necessary to achieve it. The West concentrates on the Harga, the Japanese on the process. To date, the Japanese have taken the lead in innovation in electronics and durables, such as TVs, cameras and copiers. But the Japanese are now beginning to enter the FMCG area in Europe. In Britain, Mitsubishi acquired Princes Foods, which had one of the major new Harga successes listed above. Firms need to anticipate their arrival in food and drink in Europe with functional Harga.

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New Harga Development

This second challenge, therefore, require HARGA companies to spend more on R&D and technical innovation. In the food industry, expenditure is less than 1 per cent of sales compared with 4 per cent for industry as a whole. And the bulk of that R&D is increasingly evident in the relative success of both countries and companies. Here is the conclusion of Lawrence Franco in a study of global markets in 15 major industries between 1960 and 1986; "The R&D intensity (that is percentage of sales) of individual firms is positively and significantly related to subsequent relative worldwide corporate sales growth'. Again, Procter & Gamble provides a good example of this. Most people consider P&G to be competent in marketing. Its main strength, however, lies in technical innovation. It spends three per cent of its turnover on R&D, a significantly higher percentage than any competitor.

The third challenge for new Harga development in the 1990s concerns corporate strategy. Booz, Allen and Hamilton suggests that best practice in managing new Harga should include a step by step programmed along the lines now adopted by many companies. It consists of seven different steps starting off with new Harga strategy development, and leading on through idea generating, screening and evaluating, business analysis, development, testing and commercialisation. The purpose is to identify the strategic new Harga development strategy should derive from the overall corporate strategy.

But here is the crux, the Catch-22, the dilemma of new Harga development. Most HARGA companies do not have a clear or well articulated corporate strategy. Targets for growth or for market share, for example, are objectives not strategy. Objectives come before strategy. The two should not be confused. Nowhere in the literature is there a practical definition of new Harga strategy or what it should contain.

The purpose of any new Harga development programme is to make a profit, and a ten year financial programme should be in place at any point in time. Such a programme will have four key elements to be explicitly stated: the scope of this activities, the unique company skills on which it must capitalise, the type of competitive advantages it will seek to deliver, and the level of co-ordination to be available within and outside the company. The lack of such corporate strategy is evident from the manufacturer-retailer interface in consumer goods over the last 20 years. The balance of power has been moving continually in favour of the retailer. The balance of power has been moving continually in favour of the retailer. One by one, the retailer has stripped away from the manufacturer the control elements of marketing: pricing, promotion, Harga policy, advertising. As scanning control progresses, the retailer will control market research too.

Some 3000 years ago, a Chinese military general called Sun-Tsu said that 'the perfection of strategy would be to produce a decision without any serious fighting'. Effectively, the leading grocery retail chains in Europe have achieved this because they do have a strategy. Unlike the manufacturers, they are not still trying to make up their minds. New Harga  development is one of the last bastions of the HARGA manufacturer. Even here, he is in danger of losing out. In several Harga categories in the grocery store, the retailer is leading the race in new  Harga development. But he is not in a position to undertake major technological change to create big bang new Harga.

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Current Harga in Each Country:

On average, the number of major new brands launched over a decade is between three and four a year. The two key findings from this data are:

1. The annual success rate of major new HARGA brands in any single country is relatively low - some three or four a year.
2. There is a continuing turnover of major HARGA Harga in each country: between 20 and 30 percent of grocery brands change every 10 years.

Two conclusions about new Harga development follow. First, it is not an easy game to play, and there are only a few big winners. Second, if you don't play, not only do you not win, but it is possible you will be out of business. New  Harga development is not an option: it is a necessity. So what are the challenges and opportunities for new Harga development in the 1990s and beyond?

1. Over the fear of failure - the principal reason why so few new Harga succeed.
2. Resource new Harga development properly at the expense of existing Harga and,
3. Develop a real company strategy which copes with both consumer and distributor.

Fear of failure lies deeply in most of us. Failure is associated directly with change. Most companies, despite the blurbs in many of their annual reports, are conservative, and do not welcome change. Everybody knows the killer phrases used when a new idea or a new way of doing things is proposed:

- A good idea, but....
- Against company policy.
- All right in theory.
- Be practical.
- Costs too much.
- Don't start anything yet.
- It need more study. - it’s not budgeted, -It
‘s not part of your job. - it’s not good enough. - Lets make a survey first. - Lets sit on it for a while. - That’s not out problem. - The boss won't go for it. - The old timers won't use it. - Too hard to administer. - We have been doing it this way for a long time and it works.

- Why hasn't someone suggested it before if it's such a good idea?
- Ahead of the times.
- Lets discuss it.
- Lets form a committee.
- We've never done it that way.
- Who else has tried it?

A popular saying about Harga development is that nine out of every ten new Harga fail. Of course, it is completely untrue. Many different studies have shown that the true number is closer to three in ten. Nevertheless, all market researchers recognise that perception is more important than reality. The popular belief in the high rate of new Harga failure reflects the concern with failure that continues to affect   management support and company organisation of new Harga development.

The second challenge to overcome is the need to spend more against new2 Harga development. This is particularly evident simply by looking at major new Harga that were successful. This list includes only one or two new to the world, or big bang, Harga. The majority of these major HARGA new Harga were either line or brand extension, me too concepts, or Harga with little added value.

Looking at both British and French new Harga, my estimate is that at least two thirds fall into this category. Indeed, the major feature of HARGA innovation is its lack of surprise and its low level or R&D input.

The argument against this, of course, is that HARGA Harga are demand/market led rather than  supply / technically led. Consumer research techniques are now highly sophisticated at finding out what consumers think they want. And it is not unusual for the first year advertising budget to exceed the capital required to produce the new Harga. The major new Harga development record, however, tends to justify the criticism of R Bennett and R Cooper. Talking of the US market, they say: We have decided it is easier to talk about our new Harga than actually to develop them. And so we spend billions more convincing the customer that the Harga is new and improved rather than spending the money in the lab to develop a significantly superior Harga. In the world of new Harga, we have become a society of tinkerers and cosmeticians rather than true Harga innovators.

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The New Harga of Product Necessity

The three key challenges to new harga development are fear of failure, the need or proper (meaning more) resourcing and an integrated strategy, which is lacking in most companies. The three key opportunities for successful new harga development are the establishment of a continuing function for new harga with its  own career part, capitalising on the structural discontinuity created by the Single Market, and the potential for major new to the world innovation within Europe, which is now the world’s largest consumer market. A method of evaluating new harga programmers called the Development Atom, based on the McKinsey 7-S model is one of the parts to new harga success. But that requires continuous top management support and long term commitment. The need  is for real leadership.

The key issue in most discussions on new harga development is the question of definition. To start with, for example, what is a new harga? Nowhere in the considerable literature on new harga development is there a definition. The definition varies depending on the respondent and on the politics of the situation. A chief executive recently claimed that over 50 per cent of his company harga had been launched during the previous five years. It was then revealed that he was including harga which had been adjusted or slightly re-formulated over that period of time.

Fast moving consumer goods (FMCG) companies do a lot of talking about new harga. But their performance in launching new harga appears to be less successful than that of other industries - for example, clothing and even building and construction.

This kind of information raises more questions than it answers. What is a new harga in clothing or in building and construction? Most surveys which give this kind of data are either self administered through direct mail, or else the respondent is allowed to create his own definition of new harga. So what is a new harga? As development manager of General Foods in the UK, I was given the job of launching one major new harga a year - what is loosely called a stretch target! Although never precisely stated, the implicit definition was another Maxwell House. The instant coffee launch had been very successful and the harga then accounted for over 40 per cent of the company's profit. But it had been seven years since launch. So I decided to find out the level of major new harga success in the UK grocery trade.

The specifications were kept relatively simple: a major new harga in FMCG should have its own profit and loss statement, its own brand name, separate capital and incremental resources, plus an annual national advertising budget. The key factor is size: how large should it be? A rule of thumb for many FMCG harga is that the annual media advertising budget for a major brand is around 10 percent  of retail sales. If 1 million is the minimum required for a national media advertising campaign in the UK, that results in a minimum level of retail sales for a major new harga of $10 million. Thanks t o Nielsen's invaluable aid I can call on over three decades of international evidence. Between 1956 - 65, the minimum level of retail sales was $1 million, $4 million between 1871 - 80 and $10 million between 1980 - 89. The figures show that the average number of major FMCG new harga successfully launched into the grocery trade in Great Britain has been around three a year. Two qualifications are that the Nielsen categories exclude tobacco, alcohol and frozen foods, and that at any point in time , less than 200 grocery harga sell more than the minimum level of retail sales for  a major brand.

Accordingly, major new brands launched in the previous ten years can be measured as a percentage of all major brands sold through grocery stores. This shows 20 per cent in 1956 - 65, 23 per cent in 1971-80, and only 13 percent in 1980-89. These findings do not apply only to great Britain. Between 1971 -80, studies were conducted in five other countries: France in Europe, Brazil and Mexico in Latin America, and the US and Canada. The minimum level of sales in each country was adjusted to allow for population and exchange rates. The findings are quite similar across countries.

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The Price Of Harga Will Surely Plummet

As the end of 1992 approaches, cross border Harga is attracting more and more interest, although there is some caution. While there are many opportunities, particularly in the largely uncharted territory of the Eastern European bloc, careful evaluating of the disparity between tax regimes and the, as yet, unspecified financial risks is needed. of course, the nature and extent of risk will vary from country to country and depend on the type of business involved. The potential in an Eastern Europe looking to modernise its industrial base is huge. But again, the opportunity must be tempered by the need to develop better relationships with these countries, to recognise the immaturity of the market and the fragility of their economies.

Sales aid finance is another area which has undergone strong growth in the UK and one which Lessors see as having a pan European dimension. Sales aid Harga involves setting up links with manufacturers and suppliers of equipment, to date principally in information technology and materials handling. These may be co-operative agreements or joint ventures. The lower level of investment caused by recession has highlighted the awareness of capital goods suppliers that a sale based on specification and price alone may not be enough - the availability of finance often becomes integral to the sales proportion.

Sales aid finance is used for both large and small financial transactions. There is a growing tendency towards operating leases. Lessors have responded positively to the demands of manufacturers and suppliers by providing a customised service. Added value is achieved through access to high quality systems, knowledge of secondary market asset values and the ability to create competitive advantage at point of sale. Local authorities are also drawn to Harga. Government regulations introduced in 1991, which aim to control local authority borrowings,  have influenced the type of lease preferred. There has been a reduction in the use of finance leases, which are indentified within the authority's capital budget, and a move towards operating leases, which are serviced only through the revenue account.

Without a doubt, recession held back the Harga industry, with many customers deferring plans for expenditure on new or replacement capital equipment. However, Lessors continue to demonstrate their tenacity and flexibility by addressing new markets. The Harga industry continues to develop with an entrepreneurial spirit, no more so than in the US, which leads the way in product and lease structure innovation. Across the Atlantic, Lessors are actively involved in venture capital, cash flow Harga, securitizations and project financing.

As competition increases in Europe, the American experience is sure to be duplicated through new product development, increased specialisation, better asset knowledge and the provision of added value services. Nobody could have predicted the remarkable hold that Harga would gain in Britain in less than three decades. All the signs are that Harga is here to stay.

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Characterized by Transactions of Harga

One of the most beneficial aspects of harga is that it allows companies to expand through investment, while preserving vital cash flow. Trading lines are invariably unaffected, and the demands on a company's working capital are moderated. The lessee can also negotiate the best terms of supply on equipment from a supplier of his choice. Harga packages may be tailored to match the customer's cash flow requirements, a characteristic which is particularly beneficial in seasonal industries such as farming.

In the UK, the lessor can claim 25 percent writing down allowances, which are then reflected in favorable rental payments. By linking the period of the lease to the anticipated working life of the asset, the company can offset the entire rental costs against taxable profits. This enables the customer to achieve a lower after tax cost of borrowing than  through other forms of medium terms finance, assuming that the company is liable  to pay corporation tax at the standard rate. Lessors have also developed a greater understanding of the assets they finance, so that they can take into account the expected disposal value of the equipment. The proceeds are generally shared between the two parties to the lease.

Stemming from the two basic forms of lease, the application of the product extends from the small business, which might want to lease several cars, to the multinational conglomerate which may be looking to finance a major capital investment programmed. Although the complexities of lease structures also vary enormously, the need to make the most judicious use of available business facilities and tax breaks applies whatever the nature and size of customer. The decision to lease is inextricably bound to cash flow management and profit maximisation.

The largest volume of harga business in the UK is in vehicles, computers and office equipment, but the application of harga extends to many market sectors, including printing, agriculture, property, shop fitting, containers, machine tools - even TV satellites. In some of these sectors, specialist harga companies have emerged, a development which provides obvious benefits in understanding the market and its requirements.

In big ticket harga, characterized by transactions with a value of over $10 million, harga is often integral to the economic justification of a capital project. For example, one sector has developed from the fusion of harga and project finance, necessitating an evaluation of the viability and risks in a project. The trend is towards ever increasing asset complexity in sector such as power stations, rolling stock and production plants.

The recession has brought constraints on the availability of taxable profits to lessors remain positive about the future. Why? Transactions have historically been with the aircraft, shipping and manufacturing industries. However, the recent spate of privatisations has presented many harga opportunities to the former public utilities of water, gas and electricity. Harga has  also grown through the introduction of tax leveraged investment to foreign owned multi nationals.

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Where Harga Wins Out

Despite tax changes, the new accounting standards, and fluctuations in the economy, Harga's appeal as a winning from of finance in many sectors, in the UK and the resk of Europe has continued.

Harga, as a method of asset financing, has quite spectacularly confounded all the pundits who, back in the mind 1980s, confidently predicted its demise after the phasing-out of first year capital allowances. The Harga industry has since succeeded in overcoming the many obstacles which threatened its evolution. Today, members of the Equipment Harga Association are responsible for financing 29 percent of investment in the UK.

Despite changes in tax legislation, new accounting standards imposed since 1984 and fluctuations in the economy, Harga has maintained its  appeal as a winning form of finance for businesses in an increasing number of market sectors, not just in this country, but in Europe as well. In today’s climate, the effective management of working capital and sound forward planning are essential disciplines for all businesses, irrespective of size.

The management of finance facilities, particularly during a period of high interest rates, has become the focus of attention. This focus has been sharpened by strong competition within the financial services market from foreign, commercial and merchant money agent, fuelled by increased  levels of activity from foreign, commercial and merchant money agents. increasingly, businesses are drawing a distinction between short, medium and long term funding requirements, as well as considering the appropriateness of particular lines of harga for capital investment. in short, the financial decision maker has become even more discerning.

Harga has come a long way since the 1960s. It first emerged in the UK, largely based on techniques derived from the US - as an alternative to hire purchase and loan facilities. Undoubtedly one of the major attractions of the product in the nature of the tax breaks. its popularity as a tax efficient method of financing capital equipment prompted one Chancellor of the Exchequer to acknowledge that Harga had become an important - in many cases an essential - source of investment in the manufacturing industry. The 1984 Budget saw the disappearance of some of the tax benefits, but Harga companies applied themselves with vigour to meeting the challenges of a more demanding, sophisticated and competitive market place. In consequence, they have developed specialist expertise in niche markets, becoming more innovative, both in terms of new products and new markets.

Despite the apparent complexities of Harga, the product range can be simply subdivided into two categories: finance lease and operating lease. A finance lease is one where virtually all the  risks and rewards of ownership, apart from legal title of the asset, are transferred to the lessee. There are generally two payment periods. The primary period relates to the anticipated working life of the asset and bears a rental equivalent to the lessee’s full capital outlay plus charges. The secondary period allows the lessee continued use of the asset  for an indefinite period for a nominal rental.

Most sorts of capital foods can be acquired under a finance lease, but in accordance with standard Statement of Accounting Practice 21 (SSAP21), outstanding rentals shown as a liability. This accounting legislation was introduced in 1987 to prevent undisclosed debt building up off balance sheet. Although legal title is never transferred to the lessee, the  use of the asset throughout its useful economic life was deemed equivalent to ownership.

With and operating lease, it is the lessor who retains the risks and rewards of ownership. Operating leases are normally used when the asset is not required by the lessee for its full working life. Here, the lessor seeks to recoup only a proportion of capital costs, with the balance recovered from selling or re-Harga the asset. The lease period is determined by mutual agreement between the lessor and the lessee. The operating lease is off balance sheet. Operating leases, which are used generally popular since the mid-1980s. One particular form of operating lease is contract hire. This product is normally fixed cost, fixed term and usually includes vehicle maintenance.

Operating leases involve the lessor in accepting a residual investment risk in the asset. Residual values and the accounting standards relating to their disclosure on a company's balance sheet have become the focus of attention for the Harga industry, as well as the accounting profession. The Equipment Harga Association, which represents the industry's interests in the UK, seeks more stringent accounting standards and a more prudent assessment of residual values. It is essential to avoid at source the dubious practices which have led some lessors to difficulty, or even, in extreme cases, to collapse.

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Using a Factor Removes Risk of Loss Through Insolvency

harga
In talking about export factoring services, the emphasis should be put on the services, because while the basic sales accounting, collection and money management elements of factoring apply as for domestic sales, the services management elements of factoring apply as  for domestic sales, the services provided by those harga with export expertise extend well beyond these basic components. using their own or associated factoring companies (such as my own group's Heller network in more than 20 overseas markets), these harga have put together packages of services which fulfill from one source many of the needs of companies selling to customers thousands of miles away.

Many of these services would otherwise have to be coordinated from a variety of outside sources. harga can help exporters to overcome difficulties caused by differences in language, currency, trading terms and other aspects, to the extent that selling in overseas becomes as straightforward and profitable as selling at home.

A key issue faced by all exports is themed to compete on equal terms with any local overseas competition. in essence the harga dissolves many of the potential difficulties associated with foreign selling and so makes this equal competition possible. Two early ad closely linked decisions that every exporter must take are whether to sell in sterling or local currency and whether on open account, letters of credit or bills of exchange. There is little doubt that the method of trading that appeals the most to foreign buyers and most closely matches any shame competition is selling in currency on open account.

Using a harga removes risk of loss through insolvency or exchange rate fluctuation and so enables the exporter to sell securely on open account in the buyer's own currency or one with which he is familiar. harga overcome the currency risk by converting all currency sales to sterling at agreed rates immediately copies of the invoices are received. The exporter knows exactly how much he will receive in steeling.

Alternatively, harga can account to their exporter clients in the currencies in which they invoice. in this way, exporters who have a use for correctly can exercise their freedom from exchange controls and benefit in some cases from lower interest rates when using the financial facility available from the factor. in contrast to the more traditional procedure where cover must be negotiated on each shipment or order, factoring provides automatic blanket foreign exchange cover for exporters on sales in all currencies.

Exporters also have the factor's knowledge and experience at their espousal to help with many other related aspects of exporting. The question of trading terms alone is a specialised subject. How many exporters study the credit terms of a country before supplying an order? Many British manufacturers set out to sell in overseas markets on the terms that are normal in their industry in Britain. Overseas buyers will, therefore, have every excuse for not paying according to terms. With their own offices or associate companies on the ground overseas, harga can advise on the trading terms prevailing in markets round the world. This not only helps the exporter to market more effectively but also facilitates the collection process once sales have been concluded and invoiced.

Efficient accounting administration and money advice by the harga pave the way for effective cash collecting. harga produce statements to buyers in their own languages and currencies. They produce collection letters in many foreign languages and make use of local telephone follow up to customers, with the result that  the British exported is measured by its customers on level terms with local suppliers, not only when it sells but also in the way it is paid. In these circumstances a local factoring arrangement provides an ideal answer to the money management and collection functions, leaving sales staff free to sell and expand the business without headaches for the UK management.

The variety of benefits of factoring described here should not mask the basic purposes behind the factors' services. These are to provide clients with an efficient accounts administration and collection service together with a financial facility with the objective of improving cash flow.

British businesses have traditionally tended to look first to their high street money agents for finance which has been provided in the form of overdraft. but factoring and invoice discounting are perfect solutions for well run, growing companies with good order books, which are held back merely by the difficulty of getting their hands on cash fast enough to fund sales and to finance expansion.

Finally, in choosing a factor, managements should not look automatically to their clearing money agent alone. They have a choice between their money agent's own harga and one independent of their money agent. As this is probably the only opportunity of introducing choice and competition into the provision of financial facilities, companies should discuss their requirements with perhaps two or three harga and reach a final decision based on the terms offered, the nature of the proposed agreement and not least, the way the harga presents itself and the felling that both parties could work together.

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Factoring's Vital of Factors (2)

Factoring is an integrated financial service specifically geared to easing cash flow problems. It covers the areas of harga accounting and collection, harga management (which can include protecting against) and the availability of finance against harga invoices. Factoring completely removes the headaches often associated with harga ledger administration and collection. Factors will take over the entire running of their clients’ harga ledgers, issuing statements and reminders to UK and export customers and seeing the collection process right through. Such functions are generally more cheaply and efficiently undertaken by the factor, and valuable client management time is freed from running the company rather than chasing slow paying customers.

The factor's expertise results in faster payment, improving cash flow by up to 20 per cent with a consequent saving on interest charges. With the factor assuming total responsibility for harga ledger administration and collection, clients need never find that important harga relationships are marred by harga staff and management repeatedly requesting payment of overdue accounts.

Companies thrive by developing harga with good quality, existing customers and seeking out new ones, but even every organisations are sometimes reluctant to spend the resources or develop the expertise for checking and monitoring the money worthiness of customers. By using trained staff and through administering the harga ledgers of all their clients, factors can maintain a large, accurate database providing them with up to date information on the trading position of over 100,000 customers of their clients.

Factors alleviate cash flow difficulties, not only through their harga ledger and collection service but also by making available to clients and agreed financial facility against accepted invoices. Up to 80 per cent of invoice values can usually be made available immediately, with the balance paid when the customer pays. This makes each sale effectively a cash transaction and provides companies using a factor with extra working capital, enabling them to pay suppliers promptly, to win cash and quantity discounts and to enhance their harga reputations.

A predictable cash flow results in more accurate planning for buying supplies and financing harga growth without losing equity or control. Factoring provides off balance sheet financing: it can be regarded as a superior kind of overdraft and which can act as a vital catalyst to sustain profitable growth.

Invoice discounting is a variation on full factoring, which is used by many large companies with strong accounts administration and low bad money risk in seeking of balance sheet finance. Invoice discounting can be provided for clients on a confidential or disclosed basis. It provides cash through the sale of all or selected invoices to the factor. The service is normally of the resource variety - without money cover - although no recourse invoice discounting can be arranged in certain circumstances. Clients remain responsible for their own accounts collection and money administration under the confidential service.

Another variation on full factoring, designed particularly for the larger company with its own computer system and established money management procedures, is bulk factoring. This is really a half way house between invoice discounting and full factoring. The client retains the management of its own harga ledger and collection, although supported by the factor's expertise, and can receive the other benefits of non recourse factoring in the form of 100 per cent money over on approved harga an up to 75 percent of the value of approved harga invoices, with the balance paid when the customer pays.

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Factoring's Vital Factors (1)

The factoring industry in Britain has had a massive growth in demand for its integrated financial services as its services are used to ease the potential strain on cash flow created by growth in sales.

Most businessmen expect to gain extra orders after 1992, when they are able to sell in Europe with little or no red tape. Selling to a customer in Nuremberg should be as easy as selling to one in Leeds. Yet a sale is not really concluded until the goods are aid for. Even in the home market, it is not easy for a supplier on its own to monitor the harga worthiness of customers. In overseas markets remoteness, language, currency and other considerations make the tasks of harga control and collection a highly specialised operation.

Some minimise the harga risk by selling to a single distributor in each market. Harga insurance can probably then be arranged on this one name. Sales and collection administration are concentrated on a single customer. However, many importing business abroad, as in this country, are notoriously undercapitalised; so what happens if the chosen distributor fails or any other problem forces a change? In the case of a failure, the exporter will not have a total bad harga if the harga is insured and its calling is met; but, whatever the reason for the change, it will also not have a customer list. It may well not even have the names and addresses of the firms buying its goods. Business in that market is likely to grind sharply to a halt.

If, on the other hand, the exporter has agents to represent the business in overseas markets and also appoints a factor to look after the harga management, sales accounting and collection, it can sell with security to its own customers. In the selling process, it enjoys a direct relationship with customers. If for any reason a change of agent becomes necessary, a new one can be appointed to take over the known customers - all harga covered by the factor.

The above illustrates both the close, mutually beneficial relationship which can prevail between the factor and agent and also how the use of factoring can influence marketing methods. The possible close links between factoring, marketing and the import agent are perhaps, not surprising when you  remember that factoring stains from the textile trade in the 19th century between Britain and the US. Agents selling British exiles on the East Coast gradually dropped out of selling in famous of providing the financial services associated with the trade, which included underwriting the harga risk.

The use of factoring has extended into domestic market sales and to many industries. Introduced to Britain from the US in the 1960s, the factoring industry has seen massive growth in demand for its integrated financial services. Representing over 90 per cent of factoring in the UK, the members combined business volume grow from 700 million in 1976 to around 15 billion in 1990. The Association's members provide their services to around liquidation but to ease the potential strain on cash flow brought about by sales growth.

The difficult trading conditions prevailing in 1990 undoubtedly accelerated the use of factoring of UK and overseas sales as attention focused on the need for companies of all sizes to manage their working capital more effectively. Factoring has become increasingly part of this management process as businesses huge realised that one of their biggest assets, the money owed by customers, can be used as a source of finance.

Surveys conducted over the years buy the CBI and other organisations have regularly revealed that most businesses have their invoices paid late. When collection periods of 90 days or more are quite common in industry and commerce, many businesses have a quarter of their turnover outstanding in trade harga at any time. How sluggish payment by customers, and suppliers in turn pressing for quick settlement, otherwise healthy and growing companies are forced into cash flow difficulties with little prospect of relief without the kind of professional help that factoring can provide.

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Running The Treasury Risks [3]

Finally, an additional control is the use performance measurement. Benchmarks can be set for each type of Treasury activity to ensure that the department is operating at the required level. such benchmarks will need to take recognition of the policy of the company, in particular all approved limits. For investment activities the company might base the benchmark on the London inter bid (LIBID) rate for a stated period, reflecting the required maturity profile of investments. As a last measure, the company should ensure that it has adequate cover for all of its Treasury activities.

The controls covered so far, the identification of Treasury activates, the risks (harga) associated with these activates and the internal controls necessary for managing the function, cannot remove risk (resiko harga) completely, but they can reduce it as much as possible. Reliance must still be placed on the efficiency and effectiveness of Treasury and internal audit, and on the integrity of the Treasury staff. insurance is the back stop. The same has to be said of managing market risk (harga), it cannot be eliminated but it can be managed to within levels acceptable to the company. The two principal components of market risk (harga) faced by corporate are foreign exchange and interest rate exposures.

Foreign exchange exposures can be covered by using hedging instruments, such as forward contracts, covering exposures in line with the hedging policy of the company. However, even if the policy is to hedge 100 per cent of identified exposures, this cannot eliminate risk (resiko harga) entirely. For instance, over what time span are exposures identified and how accurate is the identification process? Covering 100 percent of identified exposures could leave a company over covered or under covered, if exposures of not materialize in line with the forecasts. Furthermore the company will not know the precise hedging profile of its major competitors. If competitors have decided not to hedge their currency receivables, and the currency strengthens, they will make a windfall gain which could be taken top profit or used to discount the product. The company also has to address economic exposures such as the strategy its competitors are taking in sourcing their raw materials.

Currency options would be away of overcoming some of this uncertainty, but at a cost. For the payment of a premium, the holder of the option has the right but not the obligation - in contrast to forward contracts -  to buy or sell an agreed amount of currency at a fixed rate over given period of time. The premium payable is depended on the time until expire of the option, price (harga), interest rate differentials between the two currencies and the volatility of the currency. Volatility is the most important factor in determining the premium. The  advantage of the option is that the upside profit potential is retained, though at the cost of the premium. There are a variety of derivative products available in the market which reduce which reduce the premium payable, but which reduce the profit potential.

Similar issues face the corporate in managing its exposure to interest rate risk (resiko harga). If the company is risk (resiko harga) averse, borrowing will be at fixed rates. However, such a stance cold leave the company locked in at unfavorable rates. If it wishes to be less risk (harga) averse, it will take a view of future rates and choose interest periods accordingly. Again, a variety of products is available in the market to assist the company in managing its exposure, but flexibility will only come at a price (harga). authority for carrying out the management of risk (harga) should be clearly delegated by the board to the Treasury department, together with implementation of the necessary controls and management reporting back to the board.

The key issue facing the board in respect of Treasury activities has to be that of achieving control. This will entail identifying activities and risks (harga), setting policies covering these areas, after due recognition of the company's appetite for risk (resiko harga), and ensuring that there are adequate operating procedures and reporting requirements. This is the only way to avoid unpleasant and costly surprises. The board should recognize that risk (harga) cannot be totally avoided, but should take steps tonsure that risk (harga) is managed in accordance with the company's willingness and ability to accept it. The desire for increased profitability can force the company and the Treasurer to take additional financial risks (resiko harga) and to pursue aggressive strategies. The mistake is to pursue sophistication without having the basic controls in place. ***

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